San Francisco Chronicle
State’s housing market agony predicted to deepen next year
Sales and prices will plunge even further after worse-than-expected ’07, Realtors say
California’s housing market has fallen farther and faster this year than many leading economists expected, and it appears the worst is not over, according to a new outlook from a leading trade group.
Tighter lending standards, unrealistic prices and a standoff between home buyers and sellers are expected to drive prices and sales even lower in 2008 after a surprisingly weak 2007 made weaker by the lending crisis.
The median price for resales of single-family homes will drop to $553,000 in 2008, 4 percent less than the estimated $576,000 this year. That would be the first statewide decrease in 11 years and the largest drop since 1993, according to an annual forecast released Wednesday by the California Association of Realtors.
The number of transactions is expected to tumble 9 percent, to 334,500 – a 46 percent plunge from the peak sales figure of 625,000 two years ago.
“2008 is going to be a rocky road,” said Robert Kleinhenz, an economist for the trade group. He noted that the dismal sales projection “is one of the weakest numbers we’ve seen in a long time.”
“It’s not clear we’re out of the woods where the credit crunch is concerned. We saw a slight impact in our August sales figures, but we’re seeing September sales with a much more dramatic impact.”
Still, Kleinhenz said 2008 could represent the trough and that values and transactions could begin to pick up in 2009.
At this time last year, the Realtor group expected home sales to slide by about 7 percent. But as the year wore on and lenders began pulling back on alternative loans, and even on large loans made to those with good credit scores and incomes, transactions cratered, and the inventory of homes on the market zoomed.
The median price for the state is expected to edge up 3.5 percent for this year, although some experts attribute that in part to a larger share of home sales at the higher end and a dearth of sales at the lower end.
The trade group did not release detailed forecasts for specific regions. But Kleinhenz expects the Bay Area and other coastal areas to perform better than most regions. Harder hit will be areas such as the Central Valley and the Inland Empire, he said.
Home values in Sacramento, for example, have fallen nearly 16 percent between their peak in August 2005 and August 2007. San Francisco’s median of $832,760 is off 2.5 percent from the peak in May, and Santa Clara County’s median of $860,000 is down 1 percent since April, the Realtors said.
Unlike in other cycles, when a stumbling economy and a loss of jobs led to housing corrections in the urban core, the outlying areas showed the first cracks. There, many first-time home buyers had used exotic loans for homes in sprawling subdivisions constructed on tracts of converted farmland. As prices – which soared beyond most affordability measures – eventually softened and interest rates on those loans jumped, many homeowners found themselves owing more than they could sell for, leading to notices of default and foreclosures.
“This is the weirdest downturn in the history of California,” said GU Krueger, vice president at Irvine’s IHP Capital Partners, one of the largest U.S. investors in residential development. “Most previous downturns were driven by super-high interest rates or very weak economic fundamentals. This one is neither. It’s driven by prices getting ahead of incomes and by the drying up of financing that was making the run-up in pricing possible.”
Most economists agree a turnaround won’t come until the excess inventory of new homes is burned off, foreclosure sales peter out and prices decline to a level enticing to buyers.
“It’s what happens the morning after the party is over,” Krueger said. “We were overvalued, and now we’re depreciating – it will help with affordability, there’s no doubt about that.”
In Solano County, home to some of the largest foreclosure rates in the Bay Area, prices are eroding rapidly, and more distressed properties are coming on the market every day.
“We’re in a major slump here,” said Jas Deepak, a real estate agent with Help-U-Sell Affordable Homes. “It seems like it’s a freefall in this market.”
Deepak estimated that prices in the Fairfield area have fallen 10 to 15 percent from 2006, and last week only 10 homes were sold out of 1,300 on the market. Last October, about 30 homes were selling each week. Deepak is the agent for a nearly 1,500-square-foot ranch home on the desirable west side of Fairfield for $369,000. Four months ago, the property was listed for $415,000. If the price is reduced any more, it will be a “short sale” in which the seller must ask the lender to accept less money than what is owed.
“Two years ago, you couldn’t get a home for under $400,000,” Deepak said. “Now they’re at $350,000, and soon they’ll be in the $200,000s. It will be more like the year 2002 or 2003.”
Sales counts have suffered in San Francisco as well, but prices appear to be holding up relatively well.
For instance, McGuire Real Estate vice president Aldo Congi said, average sales prices in some districts of the city, including Bernal Heights, Pacific Heights and the Sunset, are at record highs. In Bayview, the average price stands at nearly $700,000, he said.
“We’re not building more single-family homes in San Francisco, and because there are fewer sales, prices are remaining strong and going up,” Congi said. “In condos and co-ops … prices aren’t rising as rapidly because people can shop around.”
Although buyers are enjoying more power in some markets for now, Stephen Levy, director of the Center for the Continuing Study of the California Economy, thinks the supply and demand curves might intersect sooner than in other housing cycles. After the recession in the early 1990s, it took the state’s housing market eight years to rebound.
“I think we’re at the bottom now for resale activity and (new home) permits and the real question is how fast we go up,” Levy said. “These levels are way below what the job and population growth would support. But it all depends on how fast prices adjust.”
Of course the article has the obligatory postive “I think we’re at the bottom now for resale activity” at the end.
But at least this report tries to put it in context with: “After the recession in the early 1990s, it took the state’s housing market eight years to rebound.” How long will take to rebound this time around considering the magnitude of the run-up?
I read the online version of The Chronicle every day. When I read this article, I responded with an email to the author asking her why she didn’t do some fact-finding rather than parroting what C.A.R. is saying. I told her that when someone reads and interprets all the available data on this subject, they will quickly see that prices are going to fall a lot further than this article claims………..and that they’ll fall a lot further in the ensuing three or four years. I haven’t received a response.
I read the online version of The Chronicle every day. When I read this article, I responded with an email to the author asking her why she didn’t do some fact-finding rather than parroting what C.A.R. is saying. I told her that when someone reads and interprets all the available data on this subject, they will quickly see that prices are going to fall a lot further than this article claims………..and that they’ll fall a lot further in the ensuing three or four years. I haven’t received a response.
Of course the article has the obligatory postive “I think we’re at the bottom now for resale activity” at the end.
But at least this report tries to put it in context with: “After the recession in the early 1990s, it took the state’s housing market eight years to rebound.” How long will take to rebound this time around considering the magnitude of the run-up?
.
